As financial insecurity and instability rise, hedging becomes increasingly important
as a means of capital preservation. One potential hedge is diversifying one's liquid
capital by holding some cash in a "safe haven" foreign bank account.

Two signs that fear and instability have reached critical mass are
capital flight and capital controls. Capital flight is people and enterprises moving
their capital (cash and liquid assets) to an overseas "safe haven" to avoid devaluation
of the currency or confiscation of their capital/assets. (Devaluation can be seen as
one method of confiscation; high taxes are another.)

Capital controls are the Central State's way of stemming the flood of cash leaving the
country. Why do they want to stop money leaving? If we think of each Central State as a
neofeudal fiefdom, we understand the motivation: citizens are in effect serfs who
serve the State and its financial nobility. If the serfs move their capital out of the fiefdom,
it is no longer available as collateral for the banks and a source of revenue for the
State.

Once capital has drained away, borrowing and lending shrink, cutting off the revenue
source of the banks (financial nobility). Since financial activity also declines as
cash is withdrawn from the system, the State's "skim"--transaction fees, sales taxes,
VAT taxes, income taxes, wealth taxes, etc.--also declines. Both the State and its
financial nobility are at increasing risk of decline and eventual implosion as capital
flees the fiefdom.

The Central State imposes capital controls as a means of Elite self-preservation.
Sudden devaluations are a way of impoverishing the citizens that also happen to enrich those
who transferred their wealth into another currency, a mechanism described here three years ago
in
The Royal Scam (August 3, 2009).

Those in the know transfer their wealth into another currency before it's illegal,
and once the devaluation makes everything in the country much cheaper, they transfer their
wealth back into the new currency and buy up all the assets on the cheap.

History shows that the State will "change the rules" overnight to protect itself
and its Elites. Capital controls include such measures as limiting the amount of
funds that can be transferred out of the country; limiting the amount of gold that
can be taken out of the country; barring all transfers of funds overseas; limiting
all IRA, 401K and retirement funds to owning government Treasury bonds, and so on.

The U.S. banned private ownership of gold above a few ounces in 1933 as a form of capital
control, forcing citizens to keep their capital in cash that could circulate and
(supposedly) boost economic activity. (Did it work? Obviously not.)

Central State bureaucracies and Elites can become very creative at expropriating
citizens' cash and assets once they feel threatened by a loss of faith in their
legitimacy and competence, i.e. capital flight.

For many decades, a Swiss bank account was the standard way that the wealthy
hedged the risks of capital controls. As a result of the Federal government's
efforts to catch tax cheaters and money laundering, Swiss bank accounts are no longer
easily available to Americans.

The most basic hedges against capital controls and devaluation are owning physical
gold/silver and diversified holdings of other currencies held in overseas "safe havens."
We can see these hedges against instability and insecurity in action around the
globe: wealthy Chinese
are transferring capital overseas at a furious pace and buying gold, and Spanish citizens
have been flying to London to open bank accounts so they can transfer their money out of
Spain and Spanish banks.
Should Spain leave the euro, the transfer into their traditional currency would
amount to a forced devaluation of their cash.

The massive flight of capital out of Spain has been widely reported
in the financial media, and it raises an important question for anyone with cash to
safeguard: what happens if capital controls become possibilities in the
U.S. or Canada?

The idea that the amount of money that could be withdrawn or transferred from your private
accounts might be strictly limited may seem farfetched at the moment, but if history
teaches us anything about financial crises, it is that the rules are changed overnight to
protect the Central State and vested interests.

We cannot control economic, financial and political instability; all we can do is hedge
the risks by diversifying our assets and taking control of what we can control.

I have explained why I think that
What Will Be Scarce: Liquidity and Reliable Income Streams (August 30, 2012).
Having capital that is liquid (easily converted into legal tender or moved to safety)
and income streams that are reliable, i.e. that are not speculative or dependent on
the Central State and are under your own control, are key assets that cannot be replaced.

Over the course of the past few months, New Zealand correspondent Michael Reps and I have
been discussing the issue of foreign bank accounts providing a hedge against capital
controls, and he has established a way for Americans to open an account in New Zealand
with Westpac, a bank with a verifiable history and reputation. (The service is not free
to set up, but very little of financial value is free.)

In the spirit of discussing possible hedges that are available to “the rest of us,” i.e.
the bottom 99.5%, I have asked Michael to explain the service in a Q&A format. As is my
policy, I receive no commission from Michael’s service or any other service mentioned on the site
except a no-cost-to-you commission on Amazon purchases and BullionVault investments made
via links in the sidebar.

I present this discussion not as a recommendation to take any
particular action, but as an invitation to pursue your own research into
overseas accounts and hedging in general.

As with any financial decision or transaction, do your own due diligence.
This means understanding all the risks and all the potential benefits. Read financial
statements, obtain regulatory filings, ask questions, verify what you are told, and so on.
Each nation's banking laws and legal system are different. Assume nothing.

There is no perfect hedge. Every hedge has risks. Physical gold can be stolen,
expropriated at the border, etc. Any currency can be devalued. Property held overseas
can be expropriated by a "new" government. The list is endless.

A hedge is not the same as a speculation, though each has risk. All hedges are imperfect,
and so diversification is a key strategy in hedging. The purpose of a hedge is to
preserve capital, not score gains as in speculation. An overseas account is a utility,
not a means of wealth creation.

I am not an expert in international banking or tax laws, but it is common knowledge that
U.S. citizens are required to disclose foreign accounts and report all income regardless
of its origin, i.e. all income earned anywhere on the planet must be reported to the IRS.
The purpose of an overseas account is not tax evasion, it is capital preservation/hedging,
and so having accounts in nations that have tax treaties with the U.S., transparent
reporting and rule of law is a definite plus in terms of compliance.

Holding cash in an overseas account in another currency exposes you to the risks of
foreign exchange (FX) fluctuations. It is possible to hold other currencies in the U.S.,
and U.S. dollars in a foreign account. (I use "overseas" and "foreign" interchangably, but obviously
an account opened in North America may be foreign but not overseas.) The point is that
having a foreign account offers a different sort of hedge than owning a foreign currency.

Here are my questions and Michael's answers:

Thank you Charles, I'd like to say that as we have discussed this
service over the past several months I have noticed that very few financial pundits
even consider the topic of moving away from troubled banks or economies, but usually
regress into discussions about how central planners are currently in the engine room
coming up with a solution of sorts.

It' s probably best if I start with the motivation behind this service. I help Americans
relocate to New Zealand and typically I make sure all of my clients who visit me in
New Zealand, leave the country with a new bank account, even if they want to fund it
with a minimal amount so as to limit taxable income. That way, they have the option to
quickly transfer funds in the event of any concerns over the US monetary system.

This
is one of those services that you would prefer wasn't ever needed. But as we are
seeing in Greece and Spain, it is becoming all too commonplace. The purpose of the
account has nothing to do with total return and more to do with having a lifeboat.
The bank we us is Wespac Bank and they are among the safest banks in the world at present.

The challenge to opening up a foreign bank account is two-fold. The first challenge is
proof of ID. Most banks require that you be physically present to open the account.
I have been able to work around this through a few extra steps but in the end, there
is no need for air travel to New Zealand provided you meet certain criteria.

The second is compliance via Foreign Bank and Financial Accounts Registration (FBAR)
as well as compliance issues under the Foreign Account and Tax Compliance Act (FATCA).
These two entities leave one with the impression of complexity and risk, but in the end,
once you file these documents, (which is what we assist with in our service) there is
little else required from you. You just have to let the U.S. Government know you have
an account if the value exceeds an aggregate of $10,000 USD during the tax year,
and if the value is over $50,000.00 you must file an additional form. We send you
all of the info and have a follow-up service to remind you as well.

How does the account work? (Is it like a U.S. checking account?)

It is a regular bank account as if you walked into a local branch within the US.
You are provided with an account manager who discusses the banking services on offer.
As a disclaimer, we have no involvement in this area nor do we offer financial advice
or deal with funds transfers. We simply get your account set up and let the bank do the
rest. The banks offer checking, savings and investment accounts, and you can access U.S.
ATMs for your funds.

How do I transfer money back and forth between U.S. and N.Z. accounts?

This is usually handled via the SWIFT System via your bank and Wespac. The banks are
reluctant to take funds outside of this method as they are attempting to provide full
transparency to both the US and NZ Governments.

What currency is the account held in?

Initially any funds transferred in will convert to New Zealand Dollars which are currenty
trade at .80 to the US this is up from .40 ten years ago. You can however elect to hold
funds in multiple currencies to include USD and I believe the bank is moving toward
Chinese Renmimbi Accounts also.

How much will it cost to transfer money / exchange currencies?

While this is not an area I handle, they typically charge between $25.00 to $35.00
for funds transfers. You can negotiate with the bank though for reduced fees if you plan
to hold a large balance.

Does the bank issue the required IRS tax documents at year-end?

The US and NZ have a tax treaty between the countries so that you are not double taxed.
A year end statement of income earned is provided to you by the bank and it is your
responsibility to include this on your US Tax form, much as you would from other
financial institutions you deal with. We ensure your account is set up as a non-resident
for tax purposes.

I understand being concerned about safety, but why not just buy gold held overseas via
BullionVault?

I am very bullish on gold and would hold a larger balance with BullionVault than in a bank account. I also believe gold will
likely out perform most paper currencies. Having said that, this account should not
be viewed in the same category. It is a lifeboat more than a speed boat, and represents
a contingency to a changing financial landscape that still involves banks at the
end of the day.

What if you need to buy a plane ticket to get out of town? What about smaller items
like food or a hotel room?

What is the fee for your service and how do you justify it?

The fee is $149.00 which is about an hour's time with an accountant and we provide
a 30-day money back guarantee. The value is in the convenience more than anything.
You dont have to fly 12,000 miles down under and a system has been established to
keep you compliant. Additional value comes into play if there are any capital
controls or devaluations you anticipate. This is a perfectly compliant approach to
avoiding capital restrictions and this window may not be open forever.

Does the IRS look down on this type of offshoring of ones assets?

To be fair, the IRS is not interested in your assets, they are interested in the
interest income and capital gains on those assets. This is a 100% transparent account
so the IRS understands you are not using this account as a form of sheltering or secrecy,
much as you see with other countries.

How long does it take to get an account established?

If you have a passport, between 3-7 days without a passport it takes longer.

Thank you, Michael. One purpose of this weblog is to alert readers to the
structural and systemic instability of the global financial system (and of
the political systems that are dependent on financial stability and faith in
that stability). Since no one knows what will happen, our only option is to
research potential hedges and select those which work for us and our household.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.

We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.

The process of the unsustainable collapsing and a new, more sustainable model emerging is
called revolution.

Rather than being powerless, we hold the fundamental building blocks of power. We need neither
permission nor political change to liberate ourselves. A powerless individual becomes
powerful when he renounces the lies and complicity that enable the doomed Status Quo’s
dominance.

"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

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